India: Business Process Outsourcing And A Great Deal More

Monday, December 1, 2008 - 01:00

Editor: Mr. Ansari, would you tell our readers about your professional experience with India's legal system?

Ansari: I went to law school at the University of Delhi, after having completed my undergraduate work at the University's St. Stephen's College. I was fortunate in being able to begin my practice with a leading law firm in New Delhi, one engaged in a very substantial practice across the country and including a constitutional law practice before the Supreme Court of India. It was a wonderful experience for me and the foundation for a law practice extending across a wide range of disciplines.

Editor: How did you come to Kelley Drye?

Ansari: Kelley Drye, which represented Union Carbide Corporation in the U.S., and my old firm, which represented Union Carbide-India, worked together in the litigation that derived from the industrial disaster - a massive gas leak - at Bhopal in 1984. The Indian Supreme Court found that at least 3,000 people died in the accident. We also provided Indian law support to Union Carbide in the cases brought in the U.S. By the end of 1986 all of the U.S. cases had been dismissed for forum non conveniens and transferred to India, where I litigated them with another senior barrister.

During this period there were so many Kelley Drye lawyers working on the case that I became quite familiar with the firm. I liked its democratic style, openness and transparency. Apparently, they liked me, as well, and I joined the firm in 1987.

Editor: Kelley Drye represented Tata Consultancy Group in its acquisition - with a value of more than $500 million dollars - of Citigroup Global Services Limited. Can you tell us about Tata's strategy and what it was trying to accomplish?

Ansari: Tata Consultancy Services (TCS) is the largest IT firm in India. A few years ago TCS sold its main outsourcing company, Intelenet. Shortly thereafter, Tata determined that it should really have a presence in BPO - business process outsourcing - and began to build a base. The acquisition of Citigroup Global Services Limited gave TCS a combined entity constituting the second largest BPO enterprise in the world, after IBM, and, in India, the largest enterprise of this type.

There are, in addition, a number of synergies. TCS offers end-to-end solutions to its customers and enjoys very strong relationships with them. Citigroup has a very strong domain expertise, economies of scale and a commitment to outsourcing the entire business process. This combination works very well for both parties.

Editor: The transaction was widely reported in the media, including Business Week, Times of India , International Herald Tribune , and The Wall Street Journal . What was particularly noteworthy about this deal?

Ansari: One major aspect of the deal was notwithstanding Citibank's sale of the company to Tata, Citibank committed to continue outsourcing its business processes to the combined entity for the next several years. This represents revenues of about $2.5 billion to TCS over the period. In addition, the sheer magnitude of the deal - resulting in an enterprise that constitutes the second largest BPO organization in the world - provides Tata with the capacity to address the challenges of this business on the global stage. It also provides Tata, through Citibank, an entrée to both commercial and investment banking in the global arena.

Editor: What were some highlights of Kelley Drye's representation of Tata?

Ansari: The transaction was governed by U.S. law because it constituted the sale of shares of an Indian company by a U.S. entity to an Indian entity. In addition, because of Tata's very substantial activity in the U.S., we were retained to advise with respect to U.S. law aspects of the transaction, a great deal of licensing activity in the U.S. - the handling of such licenses following a change in control. Some of these licenses were grandfathered into the deal as a consequence of Citibank being a national bank and, as such, not required to be licensed. On the other hand, the new owner of such licenses was to be an IT company, not a bank, and there were complex issues around whether that had an impact on the deal. We were also called upon for advice on a variety of antitrust and competition issues in light of Citibank's global reach. Our involvement was across a wide spectrum of the firm's expertise, and we were fortunate in having a very deep bench strength in all of the relevant areas.

Editor: It seems that Tata does not believe India is beginning to lose some of its allure in the outsourcing arena to other markets. Ansari: I don't think so. Certainly not in the IT area, where India is still dominant because of its immense technological base. In light of the country's professionals and its academic bastions, including IT institutes, I do not believe that Tata sees any loss of market share to other players in this arena.

Editor: As you know, most of our readers are general counsel and the members of corporate legal departments. In considering an acquisition of this magnitude in India, what should we be calling to the attention of our readership?

Ansari: There are several things of importance. First of all, general counsel must be in contact with a good law firm and an investment or merchant banker who knows the environment. If general counsel represents the buyer, he or she must look at the sector the company wishes to enter. India continues to have rules governing the percentage of a particular enterprise that may be owned by a foreign investor. In the case of defense, for example, foreign ownership is limited to 24 percent; in telecommunications, 74 percent. The second question has to do with structure: Should the company establish its presence directly or through an Indian subsidiary? Tax treatment is also important. Many U.S. entities have utilized resources such as the tax treaty between India and Mauritius to facilitate an Indian presence. The single most important thing, however, concerns the ability to navigate the various license and permit processes that, depending on the area of activity, must be completed. In the global environment in which business is conducted today, a global review of these processes is almost always necessary. Is Hart-Scott-Rodino approval required? Is the permission of the EU Competition Bureau necessary, keeping in mind what may be a requirement in Europe may have no bearing on what the U.S. requires?

Editor: If the decision in moving into India and setting up operations is to do so with an Indian partner, what sort of guidance do you give general counsel of an American company?

Ansari: First of all, be very selective in choosing a joint venture partner. Most of the great industrial houses in India are controlled by families. Their reputation and standing is important and should be carefully reviewed. A partner who has a reputation indicative of a willingness to violate the U.S. Foreign Corrupt Practices Act is clearly someone a foreign investor should avoid. And, of course, it is going to be a matter of public record if an organization has been subject to an SEC or Department of Justice investigation on any matter.

Editor: How about going the other way? With globalization a great many Indian enterprises are spreading their wings and going abroad. How are you advising their general counsel?

Ansari: That varies from entity to entity and also depends on the jurisdiction where they propose to operate. Tata has been part of the international arena for a very long time and possesses great familiarity with mergers and acquisitions across a variety of jurisdictions. Other Indian companies are first-time players in that arena, and a great deal of hand-holding takes place. The advice that we provide such organizations is not all that different from what we are saying to some of the most experienced and sophisticated Indian companies: Be careful in your due diligence; do a careful background check, with particular reference to reputation and standing in the community, on your foreign partners; make sure the licensing and permitting issues have been addressed; and determine early in the process that the structure proposed for the transaction is appropriate for the proposed venture.

Editor: For purposes of attracting foreign investment, what are the hot areas of the Indian economy today?

Ansari: India just opened its real estate market to foreign investment, and that is a very hot area now. Until the recent drop in global financial markets, the Indian securities markets were hot. Healthcare has a great deal of potential in India, and hospitals and medical care development, particularly infrastructure, are attracting a great deal of attention. India has also recently opened up investment opportunities in the military sector, and we see a great deal of foreign investment going into components for artillery, aircraft and military supplies, in addition to investment in the civilian applications for such components. While foreign investors currently are not able to own the entirety of a defense-oriented enterprise, an undertaking with an Indian partner, particularly one with connections in the country's defense establishment, can be very attractive. Recent discussions between India and the U.S. concerning the development of nuclear power are indicative of positive trends in the energy sector, and these trends have enormous potential. This is a good time for foreign investment to be looking at India.

Another factor working very much in India's favor at the moment concerns the maturity of its institutions. The country has never had a military dictatorship, and the closest brush with that kind of regime - Indira Gandhi's prime ministership during the 1970s - was soundly rejected by the people as soon as they had an opportunity to do so. Parliament has matured as an institution, as has the Indian judiciary. Indeed, the Indian Supreme Court is one of those institutions in which, as members of a global profession, we all take pride. Certainly, for India the promise that the Indian Supreme Court represents is being fulfilled both at home and abroad for its people. There are very significant problems, to be sure, but at the moment I think there is a very real perception that they will be addressed. Every step forward brings in that much more foreign investment and ensures that the positive momentum is going to continue.

Please email the interviewee at tansari@kelleydrye.com with questions about this interview.